Crypto-rules: Central banks have limited power to influence traders on a blockchain system - experts

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The logo of Bitcoin (virtual currency) is pictured on a door in an illustration picture taken at La Maison du Bitcoin in Paris July 11, 2014.

REUTERS/Benoit Tessier

Yasmine Saleh,
ZAWYA

Regulators may be able to control the means by which cryptocurrencies are traded in individual markets, but they can have limited influence on the blockchain technology structure on which they are all created, according to experts.

“We can’t regulate the technology,” Marco Santori, an expert in blockchain law and partner in the United States-based law firm Cooley LLP told Zawya at the World Government Summit on Monday.

“Regulations and laws should be technology-neutral and should regulate activities - and primarily in the context of blockchain technology, custodians and intermediaries,” he said. Intermediaries are those, such as brokers, who facilitate or engage in the process of buying and selling cryptocurrencies.

The architecture of blockchain, where each data is entered, stored and verified on a distributed ledger by participants without interference from third parties means that central banks’ abilities to control the technology is limited.

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Santori said that regulators should focus on ensuring that custodians, such as exchanges, and intermediaries are not laundering money or engaged in other illegal financial activities.

When asked if central banks could introduce rules to control fees, interest rates, or prices of cryptocurrencies, Santori said: “That does not happen on blockchain. The central bank does not have any greater power on the blockhain than any individual. This is one of the attractive propositions of the blockchain technology."

Santori said central banks could put money in cryptocurrency to indirectly implement a monetary policy. But at the end, they will be “free market actors on these networks like anyone else”.

Michael Gronager, CEO and co-founder of Chainalysis, which, according to its website, produces digital products that could help bitcoin investors to detect fraud and money laundering, said no one can control or restrict the flow of cash on cryptocurrency exchanges.

“But you can have a complete insights afterwards on where (the digital currencies) went,” Gronager told Zawya.

The news shows the UAE’s intention to regulate the trading environment in virtual currencies, which have boomed last year through the popularity of Bitcoin, the best known and most valuable cryptocurrency. There are currently no international rules organising trading in cryptocurrencies and several banks in the United States and United Kingdom have announced plans to ban the use of credit cards in cryptocurrency-related transactions.

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